Friday, May 30, 2008

I recently received the following question from one of my regular readers:

"I'm having difficulty understanding how I can compare the performance of two mutual funds, for example lets consider XSB (ishares bond index) and XIC (ishares S&P/TSX index).Traditionally the way I'd evaluate the historical performance of these funds is to look at the change in share price over a period of time (say five years). Lets say the share price in one went up 22% in that period and the other went up 44%.But now I realize that, both of these funds pay dividends. Lets say the first one averages 4%/year while the other pays 2%. This complicates the equation immensely, in terms of determining the actual return on investment.Ideally the sort of analysis I'd like would be something like: - what if I put one million dollars in both funds 5 years ago - and then re-invested any dividends - and then sold the funds at market value today, and payed any taxes out of the proceedsThis to me seems like a good way of modeling the real return of those funds over the investment period.So my question is...are there any tools or common methods for performing this kind of analysis? Mutual fund price charts are a dime a dozen, but I can't find any kind of online tool that will even roughly model this kind of analysis. Am I missing something or misunderstanding the concept of return on investments in funds?"

This is a very good question, as it delves directly into theidea that looking at charts alone might not be enough in order tocompare total returns. The last statement of course depends on thedata provider.

What I would consider doing is :

1. Going to ca.finance.yahoo.com, which is one of my favorite sitesfor stock market and dividend data.2. Type in the symbol which you are interested in ( XSB).3. Look over to your left, under the text " More on XSB.TO", you willfind a link to Historical Prices. We would be using the alreadycalculated historical prices from Yahoo.4. After that you should be able to see an online table with daterange and open/high/low/close and volume daily information. You wantto focus on the "Adj Close" column at the end of the spreadsheet. It'suseful for me to look at the data in a monthly view since we will beresearching 5 years worth of returns.5. You could see how dividends are being placed every 3 or so monthsfor XSB, and they are automatically adjusted at the "Adj Close"column. You could then download the data for the specific period youare interested for into excel.

In order to get the same information for XIC, just follow steps 1-5. Ijust went ahead and charted the total returns of XSB versus XIC from04/2003 to 04/2008.

I am sure that there are other ways to accomplish this, so I would be interested in my readers input on this one. Any comments are welcome!

Thursday, May 29, 2008

Consolidated Edison, Inc., through its subsidiaries, provides electric, gas, and steam utility services in the United States.The company is a dividend aristocrat as well as a component in the S&P 500 index. Over the past 10 years Consolidated Edison has delivered an average total return of 7.30% annually to its loyal shareholders. Dividends have accounted for the majority of this return. Historically, the best time to buy ED was on dips and dividend yield of over 6%.

The company has managed to deliver an unimpressive 1.50% average annual increase in its EPS since 1998.

The ROE has been decreasing from over 12% 1999 to a little over 7% 2004, before recovering slightly to 10% in 2007.

Annual dividend payments have increased over the past 10 years by an average of 1% annually, which is slightly below the growth in EPS. A 1% growth in dividends translates into the dividend payment doubling every 72 years. If we look at historical data, going as far back as 1979, ED has actually managed to double its dividend payments on average every fourteen years.

If we invested $100,000 in ED on December 31, 1997 we would have bought 2421 shares. Your first quarterly check would have amounted to $1283 in early 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $2356 by November 2007. For a period of 10 years, your quarterly dividend has increased by 9.40 %. If you reinvested it though, your quarterly dividend would have increased by 83.60%.

The dividend payout has fluctuated greatly, along with the EPS and ROE. The current ratio of 67% does look a little high. When put into the perspective of the past 10 year’s average of 77.50 % though, it looks pretty normal for the company. Overall, a lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

ED is a slow growing utilities company, which does offer a generous yield. The best time to purchase the stock over the past 10 years has been on dips and higher than average yields.I do like the fact that the company is trading at a low multiple and has been able to consistently raise its dividends for over 34 consecutive years. I would require a yield of at least 6% however in order to initiate a position in the stock. If you are retiring in less than 10 years, you could buy a half position at current prices and then buy a second half below $39. I would be a buyer on dips below $39.

Tuesday, May 27, 2008

Automatic Data Processing, Inc., together with its subsidiaries, provides technology-based outsourcing solutions to employers, vehicle retailers, and manufacturers. It operates in three segments: Employer Services, Professional Employer Organization (PEO) Services, and Dealer Services.Automatic Data Processing is a dividend aristocrat as well as a component in the S&P 500 index. It has been increasing its dividends for the past 33 consecutive years. Over the past 10 years the company has delivered an average total return of 6.20 % annually to its shareholders. The majority of the gains occurred from 1998 to 2000. The stock has not recovered from its November 2000 highs yet.

At the same time the company has managed to deliver an 8.40% average annual increase in its EPS since 1998. ADP has also managed to consistently purchase back 2.1% of its shares on average in every year since 2000.

The ROE has fluctuated in the 17%-25% range for our study period. Overall this indicator has increased since 1998.

Annual dividend payments have increased over the past 10 years by an average of 15.20% annually, which is significantly above the growth in EPS. A 15% growth in dividends translates into the dividend payment doubling almost every 5 years. If we look at historical data, going as far back as 1983, ADP has indeed managed to double its dividend payments every five years.

If we invested $100,000 in ADP on December 31, 1997 we would have bought 3258 shares (adjusted for a 2:1 split in January 1999). Your first quarterly check would have amounted to $215 in early 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $1058.50 by December 2007. For a period of 10 years, your quarterly dividend has increased by 339 %. If you reinvested it though, your quarterly dividend would have increased by 392%.

I also like the fact that the company’s dividend payout has not exceeded 50% over the past 10 years in addition to the low P/E ratio which is less than 19 and the above average dividend yield of 2.70%.

Monday, May 26, 2008

Even though it is Memorial Day Weekend and the US markets are closed, markets around the world are open for business. There’s some news on CNN, where Bufett is quoted as saying that the US is in a recession.

"I believe that we are already in a recession," Buffet was quoted as saying. "Perhaps not in the sense as defined by economists. ... But people are already feeling the effects of a recession.""It will be deeper and longer than what many think," he added.My belief is that Buffet, who knows that markets listen to his every word, is trying to create a self-fulfilling prophecy. His gain would be buying some good quality companies stock at a bargain.There are rumors floating around that InBev will be buying Anheuser- Busch (BUD) at $65/share. The stock is currently trading at about 36.35 euro/share in Germany, which at 1.5771 US Dollars per Euro equals to about $57.33, or about a 2% increase over last Fridays close.

It’s very intriguing that BUD is the second dividend aristocrat that might be taken over this year, after WWY agreed to be bought by a consortium of Mars Inc and Warren Buffet. Both companies are every value investors dream come true- strong, easily recognizable brand, stable business model as well as long history of paying increasing dividends. The issue with dividend aristocrats is that there are many great value companies within this list. Thus, they could potentially attract competitors, which will buy them at a record price, which will actually turn out to be a bargain in the long term. The dividend investor would have to look for new opportunities for his or her money as a result of the abovementioned happenings.

And last but not least,this Memorial Day I wanted to thank everyone who has fought, or is fighting for the right of american people to live in a free democratic country.

Friday, May 23, 2008

Kimberly-Clark Corporation engages in the manufacture and marketing of health and hygiene products worldwide. It operates in four segments: Personal Care, Consumer Tissue, K-C Professional & Other, and Health Care.Kimberly-Clark is a dividend aristocrat as well as a component in S&P 500 index. It has been increasing its dividends for the past 36 consecutive years. KMB has delivered an average total return of 6.60 % annually to its loyal shareholders. over the past 10 years.

At the same time the company has managed to deliver a 7.50 % average annual increase in its EPS since 1998. The company also managed to buy back 2.60% of its outstanding stock annually on average each year since 1999.

The ROE ratio was declining from its 1999 high of almost 33% to the 25% lows in 2003 and 2006 before shooting back up above 33% in 2007.

Annual dividend payments have increased over the past 10 years by an average of 8.30% annually, which is slightly above the growth in EPS. An 8% growth in dividends translates into the dividend payment doubling every 9 years. If we look at historical data, going as far back as 1988, KMB has indeed managed to double its quarterly dividend payments every nine and a half years on average.

If we invested $100,000 in KMB on December 31, 1997 we would have bought 2122 shares. Your first quarterly check would have been $530.50 in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $1,409 by December 2007. For a period of 10 years, the quarterly dividend has increased by 112 %. If you reinvested it though, your quarterly dividend income would have increased by 167.50%.

The dividend payout has remained below 50% for the majority of the past 10 years except for the past 3 years. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that KMB is attractively valued with its low price/earnings multiple of 15, and DPR of 51%. The company also pays an above average yield of 3.60%.

Thursday, May 22, 2008

TEPPCO Partners, L.P., through its subsidiaries, operates common carrier pipelines of refined products and liquefied petroleum gases in the United States. The company operates in four segments: Downstream, Upstream, Midstream, and Marine Transportation.

Teppco is part of the dividend achievers index. It has been increasing its dividends for the past 18 consecutive years. Over the past 10 years the company has delivered an average total return of 13.40 % annually to its shareholders.

At the same time the company has managed to deliver a 5.50 % average annual increase in its EPS.

The ROE fluctuated greatly, rising as high as 31% in 1999 then falling to as low as 11% in 2003, before settling at 22% in 2007.

Annual dividend payments have increased over the past 10 years by an average of 5.90% annually, which is slightly above the growth in EPS. A 6% growth in dividends translates into the dividend payment doubling every twelve years. If we look at historical data, going as far back as 1995, TPP has indeed managed to double its dividend payments every twelve years.

If we invested $100,000 in TPP on December 31, 1997 we would have bought 4442 shares (Adjusted for a 2:1 stock split in August 2003). Your first quarterly check would have been $1888 in January 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly payment would have risen to $6253 by October 2007. For a period of 10 years, your quarterly dividend has increased by 63.50 %. If you reinvested it though, your quarterly dividend would have increased by 221.20%.

The dividend payout has remained above 100% for the majority of our study period. When put into the perspective of the past 10 year’s average though, it looks pretty normal for the company. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that TPP is attractively valued at its current price/earnings multiple. The company boasts an above average dividend yield.

The Money Gardener presented Canadian investment styles diverge. Basically canadian dividend stocks are underperforming the broad market average. Does short term market fluctuations concern MG? Not at all. He believes that when most investors are ignoring these dividend paying firms, is usually the best time to get involved.

Contrarian Value Investing presented Warren Buffett added to Unitedhealth Group. For all of you Buffet Watchers this might be a good tip to invest in. After all, if you had followed Buffet's investments over the past 3 decades, you would have outperformed the S&P 500.

MoneyNing is having a Honeymoon Giveaway of More Than $1000. On June 1st, 2008, he will divide his highest RSS subscriber count (currently at 1,095) by 10 and give away 10 equal prizes for the following 10 days.

Kinder Morgan Energy Partners is a not dividend aristocrat but a dividend achiever. It has been increasing its dividends for the past 12 consecutive years. Over that period the company has delivered an average total return of 20.00 % annually to its loyal shareholders.At the same time the company has managed to deliver an impressive 21.30 % average annual increase in its net income from 1998 to 2007.The ROE increased from a low of 7% in 1998 to a high of 24 % in 2006, before decreasing to 13 % in 2007.

Annual dividend payments have increased over the past 10 years by an average of 15.30% annually, which is lower than the growth in net income. A 15% growth in dividends translates into the dividend payment doubling almost every five years. If we look at historical data, going as far back as 1993, KMP has indeed managed to double its dividend payments almost every five years. If we invested $100,000 in KMP on December 31, 1997 we would have bought 5903 shares (adjusted for a 2:1 split in August 2001). Your first quarterly check would have been $1658.75 in January 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly payment would have risen to $9920.24 by October 2007. For a period of 10 years, your quarterly dividend has increased by 213 %. If you reinvested it though, your quarterly dividend would have increased by 498%.The dividend payout has remained above 100% for the majority of our study period. When put into the perspective of the past 10 year’s average though, it looks pretty normal for the company. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that KMP is attractively valued at its current price/earnings multiple and solid dividend growth. The company also boasts an above average dividend yield.

That wasn't enough for me, however. I have noticed that there are a lot of great dividend paying companies which are not as established as the Dividend Aristocrat family of indexes. The only reason why they didn't come under my radar screen was simply because they had raised their annual payment for less than 25 years. These stocks do have the possibility of becoming the next dividend aristocrats.

My previous research showed that companies stay about 6.5 years on average in the dividend aristocrats index. The current aging of the aristocrats was about 36 years. Thus, in order to take full advantage of increasing dividend payment for a maximum amount of time, I believe that it pays to buy stocks, which could become the next aristocrats, before they join the list.

"The Broad Dividend Achievers™ Index is designed to track the performance ofU.S. publicly traded of dividend paying companies that meet the "Dividend Achievers" requirements. To become eligible for inclusion in the Index, a company must be incorporatedin the United States or its territories, trade on the NYSE, NASDAQ or AMEX, and have increased its annual regular dividend payments for the last ten or more consecutive years. In addition, Mergent requires that a stock's average daily cash volume exceed $500,000 per day in Nov. and Dec. prior to reconsitution."

This index has managed to outperform the S&P 500 over the past 10 years by 1% annually on average by performing better than average in 4 of the past 10 years.

According to Mergent Inc, a $10,000 investment at the end of 1997, would be worth about $16,148 by the end of 2007.There's an ETF, which tracks the index. The Ticker is PFM.

American Capital Strategies is not a dividend aristocrat but is a component in S&P 500 index. It has been increasing its dividends for the past 10 consecutive years however, while delivering an impressive average total return of 19.50 % annually to its loyal shareholders.

At the same time the company has managed to deliver a notable 11.60 % average annual increase in its EPS since 1998. If we look at the earnings chart though, it looks as if the EPS has been range bound, never been able to exceed $7.

The trend in ROE has followed the trend in EPS closely over the past decade, rising as high as 31% in 1999 and falling as low as a negative 1% in 2000. The average return on equity has remained at 11.30%. Annual dividend payments have increased over the past 10 years by an average of 9.80% annually, which is slightly below the growth in EPS. A 10% growth in dividends translates into the dividend payment doubling every 7 years. If we look at historical data, going as far back as 1998, ACAS has indeed managed to double its quarterly dividend payments every four and a half years on average. If we invested $100,000 in ACAS on December 31, 1997 we would have bought 6906 shares. Your first quarterly check would have been $1,726.50 in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $17,095 by December 2007. For a period of 10 years, the quarterly dividend has increased by 300 %. If you reinvested it though, your quarterly dividend income would have increased by 890%. The dividend payout has fluctuated greatly, along with the EPS and ROE. The current ratio of 94% does look a little high. When put into the perspective of the past 5 year’s average of 88% though, it looks pretty normal for the company. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. I think that ACAS is attractively valued with its low price/earnings multiple and above average dividend yield. ACAS is every dividend investors dream stock with its above average dividend yield and dividend growth rate. It should be part of every dividend investor’s portfolio.

Thursday, May 15, 2008

In my previous post Dividend Conspiracies I posted a larger list of companies that have increased their dividends for more than 25 years, which for some reason or another, was more thorough than the S&P dividend aristocrats lists.

I used the same screening criteria for identifying stocks worthy of my watchlist as described in this post.

Wednesday, May 14, 2008

I have recently stumbled upon some intriguing dividend information that broadened my investment horizon. Some fellow dividend bloggers mentioned HSY and CL in their dividend analyses. Being too focused on the dividend aristocrats and the high-yield aristocrats I ignored those picks as ones that are “not good for me”.

After reading through both companies financial statements though, it seems to me that both have increased their dividend payments for over 25 years. In fact Colgate Palmolive has increased its annual dividend payments for over 45 years, while Hershey’s has increased its dividends only for 33 years. I had a brief conversation under my posting on “Historical changes of the S&P Dividend Aristocrats”, where yielder posted some S&P data, showing that both companies have cut their dividends. Yet, according to my trusted data source (Yahoo Finance) and both companies’ annual reports, these stocks should be included in the dividend aristocrats lists. I think that the S&P sometimes eliminates stocks from the lists due to factors such as spin-offs ( Altria, Hillenbrand Industries), or special dividends (CL). In addition, the dividend aristocrat lists exclude all companies which are not part of the S&P 1500 universe. What about a company with a market cap of less than 2 billion dollars, which trades 200,000 shares a day and has increased its dividends for 40 years? It appears that one of my local banks, Commerce Bancshares is indeed a company worth investigating.

I found a more thorough list of US companies that have continuously increased their dividend payments to shareholders for over 25 years on http://www.dripinvesting.org/ website. There are more than 130 companies in the US that fit this criterion. The person who prepared the list is Dave Fish, Exec. Editor of The Moneypaper, Direct Investing, The Moneypaper Guide to Direct Investment Plans as well as a Co-manager of The MP 63 Fund (DRIPX).

For future references I would call this list Dividend Champions. You could find the complete list here.
Tomorrow, I would present to you the results of my screen on the US Dividend Champions.

Sunday, May 11, 2008

"Overall Pepsi has shown a much bigger progress than Coke over the past 10 years. In addition, it’s trading at a bargain multiple relative to its biggest competitor. And last but not least, its dividend growth is much higher than Coke. I would consider adding to Pepsi on dips below $68. I might also consider adding to Coca-Cola below $51."

Over the past several weeks the company has traded below 68 on a couple of occasions. I am considering buying some PEP this week, as long as the price is below $68.

In addition to that PEP recently announced an increase in its annual dividend from $1.50 to $1.70, which is a healthy 13.33% raise. The quarterly dividend of $0.425 is payable June 30, 2008, to shareholders of record on June 6, 2008.The ex-dividend date is June 4.

Disclosure: I do not own PEP or KO at the moment. This analysis is not a recommendation to buy or sell securities. Always consult a financial professional before investing.

Friday, May 9, 2008

Gannett Co., Inc. operates as a news and information company in the United States and the United Kingdom. It operates in two segments, Newspaper Publishing and Broadcasting.Gannett Co is a dividend aristocrat as well as a component in S&P 500 index. Gannett has been increasing its dividends for the past 39 consecutive years. The next increase will be in July, based on the past several years.

Over the past 10 years the company has delivered a negative average total return of 2.70 % annually to its shareholders.

At the same time the company has managed to deliver a meager 2.00 % average annual increase in its EPS. The ROE has been in a steep downtrend from its 1998 highs at 25% to less than 11% in 2007. The decline in the newspaper business is the main driver behind the deterioration in fundamentals.

Annual dividend payments have increased over the past 10 years by an average of 6.70% annually, which is above the growth in EPS. A 6.70% growth in dividends translates into the dividend payment doubling every eleven years. If we look at historical data, going as far back as 1985, GCI has indeed managed to double its dividend payments every eleven years. If the company does not increase its EPS over time, any future dividend increases would be unsustainable.

If we invested $100,000 in GCI on December 31, 1997 we would have bought 1662 shares. Your first quarterly check would have been $315.78 in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly payment would have risen to $770 by December 2007. For a period of 10 years, your quarterly dividend has increased by 110.50 %. If you reinvested it though, your quarterly dividend would have increased by 143.90%.The dividend payout has remained below 35% during our study period. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. Even with the small growth in earnings, it could take several years of positive dividend growth and flat earnings for this ratio to cross 50%. I think that GCI is attractively valued with its low price/earnings multiple of 6.50 and low DPR. The company also boasts an above average dividend yield at 5.50%.

GCI does seem to have troubles selling advertising for its newspapers. The growth of the internet represents a threat to the newspaper industry. I do believe though that the newspaper industry will survive. It survived the radio, TV so it will survive the internet. This stock is not for everyone as it is a true contrarian play, which has its place in a diversified dividend portfolio. I would consider initiating a position by spreading my purchases over a 12 month period.

Thursday, May 8, 2008

I usually spend several hours per week researching dividend investing. I go through hundreds of stocks and stock strategies in order to learn something new and get an edge over other investors in the marketplace. Over time I have started to notice that most companies from the state of Ohio look promising as dividend stocks and seem to be shareholder friendly. Thus, I conducted a short research in order to check which states were the friendliest for dividend aristocrats investors. By doing that, I could then isolate some specific trait for those states which might have escaped my attention, had I not focused on it.

I simply took the 59 aristocrats in the index and checked to see where they are headquartered. And the winner was Illinois, with 7 dividend companies located there. The number two spot is held by three competing states – North Carolina, New York and Ohio. New Jersey holds the third spot for most dividend aristocrats located there.

Wednesday, May 7, 2008

The Valspar Corporation manufactures and distributes coatings, paints, and related products primarily in the United States and internationally. Its coatings include decorative and protective coatings for metal, wood, plastic, and glass, primarily for sale to original equipment manufacturer customers.

Valspar Corp is a dividend aristocrat as well as a component in S&P 500 index. It has been increasing its dividends for the past 27 consecutive years. Over the past 10 years the company has delivered an average total return of 5.40 % annually to its loyal shareholders.

At the same time the company has managed to deliver an impressive 7.00 % average annual increase in its EPS.

The ROE declined from a high of 21% in 1998 to a low of 8% in 2001, before recovering to 13% in 2007.

Annual dividend payments have increased over the past 10 years by an average of 11% annually, which is above the growth in EPS. An 11% growth in dividends translates into the dividend payment doubling every six and a half years. If we look at historical data, going as far back as 1994, VAL has indeed managed to double its dividend payments every six and a half years.

If we invested $100,000 in VAL on December 31, 1997 we would have bought 6435 shares (adjusted for a 2:1 split in September 2005). Your first quarterly check would have been $337.84 in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly payment would have risen to $1045.80 by December 2007. For a period of 10 years, your quarterly dividend has increased by 166.67 %. If you reinvested it though, your quarterly dividend would have increased by 209.60%.

The dividend payout has remained below 50% during our study period. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that VAL is attractively valued with its low price/earnings multiple of 14.60 and low DPR. The company also boasts an above average dividend yield at 2.50%.

Disclaimer

I am not a licensed investment adviser, and I am not providing you with individual investment advice on this site. Please consult with an investment professional before you invest your money. This site is for entertainment and educational use only - any opinion expressed on the site here and elsewhere on the internet is not a form of investment advice provided to you. I use information in my articles I believe to be correct at the time of writing them on my site, which information may or may not be accurate. We are not liable for any losses suffered by any party because of information published on this blog. Past performance is not a guarantee of future performance. Unless your investments are FDIC insured, they may decline in value.

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